Oil prices edged lower on Monday following weak economic data from China, though they held onto most of last week's gains as markets awaited the outcome of renewed U.S.-China trade talks in London.
Brent crude dipped 16 cents to $66.31 a barrel, while U.S. West Texas Intermediate (WTI) fell 16 cents to $64.42. The decline came after data showed China’s export growth slowed to a three-month low in May due to U.S. tariffs, and factory-gate deflation hit a two-year worst. Meanwhile, China’s crude imports also dropped to their lowest daily rate in four months amid widespread refinery maintenance.
Despite this, both benchmarks had strong performances last week - Brent rose 4% and WTI climbed 6.2% - as investor sentiment improved on hopes for a breakthrough in trade negotiations. A solid U.S. jobs report further bolstered expectations of a Federal Reserve rate cut, adding to the positive momentum.
Still, the oil market faces headwinds. The OPEC+ alliance is increasing output faster than expected, with HSBC warning of potential downside risks to its $65 Brent forecast if production continues to rise in August and September. Analysts at Capital Economics believe this faster pace is likely to continue.
Supply concerns also remain. Although U.S. oil output has been supported by strong summer fuel demand, disruptions from Canadian wildfires and a recent drop in active U.S. drilling rigs — down by nine last week, according to Baker Hughes — raise questions about future production levels.
Brent’s price volatility has eased since mid-May, trading within a narrow range. A widening backwardation - where near-term prices are higher than later ones - points to tightening supply in the short term. Analysts suggest that if trade talks remain constructive, they could help offset the bearish impact of rising OPEC+ output and restore some market confidence.